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The Covid-19 pandemic has pushed the Indian banking sector to bring in more granularity in lending parameters and also look at news ways of lending.
According to Amitabh Chaudhry, MD and CEO, Axis Bank, while banks have traditionally looked at lending parameters at a sector level, however, now most banks are looking at sub-sector levels. Bank are also monitoring portfolio in a much more granular manner.
“Banks are looking at lending parameters at all levels even within sub-sectors. So, what banks are doing now is that they are thinking like equity investors because if we do not get into that level of granularity, then it could impact our lending,” said Chaudhry while delivering his keynote speech at the 11th annual finance symposium, GNOSIS’20, organised by XLRI on Friday.
Banks are going into finer details and looking at the long-term survival of a sector they are financing. This apart, they are also doing a much more detailed analysis of promoters of a company. This would eventually lead to a situation, where the promoters with the right pedigree, background, and right leverage would end up getting money (loan) at the right price, he said.
Real-time data
Chaudhry said banks are also increasingly relying more on real-time data, and the banking system is continuously partnering with fintech companies for enhancing lending parameters.
“The data helps real time decision making possible,” he said.
A number of banks are also moving towards digitally-enabled systems and processes and relying on artificial intelligence and machine learning, which is eventually likely to become a core part of the lending process of banks.
These initiatives will help bring down costs and also reach out to a larger section of population. This apart, this will also enable banks to roll out a number of innovative products including small ticket loans among others.
Managing NPAs
The Covid-induced slowdown and its impact on economy and businesses is likely to lead to a spike in delinquencies of customers thereby pushing up the NPAs (non-performing assets) of banks. There is also a stress building up in the retail loan book as reducing income and increasing expenses on healthcare is exerting a pressure.
“After a long period of time we have seen retail stress building up. In fact, if you look at cheque bounce figures then it is up by 15-20 per cent from retail loan accounts, both for salaried and self-employed people,” he said.
However, banks are working hard to manage the asset quality and have taken several steps, including strengthening their balance sheet, by raising capital and enhancing their provision coverage on potential loan losses; modernising monitoring process and also focusing on collections.
“NPA problem is real, but if we can enhance these modern parameters we will be able to manage things well,” he said.
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